| Welcome to the final issue of the Select Wealth Management Dashboard Newsletter for 2016. Hopefully you have all your Christmas shopping under control by now, so you can ease towards a relaxing holiday season...
As is customary, I'll finish the year by reflecting on my predictions that I made in January for the year 2016. Over the years, I have run at about a 60% accuracy rate – let's see how I did in 2016. (Predictions are in black and actual outcomes are in red): 1. One of the major developments this year will be the USA presidential elections in November. It's hard to believe that the elections are still 10 months away when it feels like they have already been campaigning for a year! It really is a long and drawn out process. The presidential race is likely to be between either Hillary Clinton or Bernie Sanders for the Democrats, and Ted Cruz or Donald Trump for the Republicans. Donald Trump's celebrity got him off to a great start in the campaign. He is charismatic, a divisive straight shooter, and has some extremely strong right leaning views on certain issues that will win him loyal support in some quarters. He could be a strong leader, but also a potential danger given some of his right leaning views. I think it will be a close race between him and Ted Cruz, but in the end Hillary will trump them all and the USA will have its first ever female president. Well, I came close here. The race between Trump and Clinton was one of the closest (and nastiest) presidential election races ever. The Trump victory came as a surprise to many people. All said and done, I can't claim any points here. Prediction – 0 : Reality – 1. 2. Brazil hosts the Olympics in August this year, and New Zealand sporting enthusiasts are excited at the prospect of an extremely successful Olympic campaign. We finished 15th in London (2012) with a total haul of 6 gold medals. This year we have over 10 genuine gold medal contenders – many of them woman. I think it'll be a great campaign – perhaps even a top 10 finish. This is an interesting one. It was a successful campaign in that New Zealand claimed more medals in Rio than any other Olympic games – a total of 18. (The previous best was 13). However only 4 of those were gold, so we finished 19th overall – a bit disappointing. I'll claim a point for the success of the medal tally, but I'll give reality a point as we were far outside the top 10. Prediction – 1 : Reality – 2. 3. Interest rates are always an important consideration – it dictates mortgage and term deposit rates. The New Zealand official cash rate starts the year at 2.50%, and I think this is about where it will finish too. If anything, it may fall slightly, but it is difficult to see an environment where it is much higher. The "lower for longer" catch-phrase is still very much a reality. I picked the direction, but not the magnitude. The OCR ends the year at 1.75% - quite a lot lower relative to the 2.5% starting point. It's worth taking a minute and reflecting on just how low this rate is. 1.75%! Think back to the days where your second mortgage on your home was at 20%. It's no wonder that home values are at record highs... I'll call this one a draw too – a point for predicting the direction, but a point to reality for missing the size of the move. Prediction – 2 : Reality – 3. 4. US interest rates on the other hand will increase this year. Their Federal Funds Rate starts the year at 0.25%, having been at 0% for nearly 7 years. There is a strong bias within the committee members that make the decision on rates (the FMOC) to increase this rate materially over the course of 2016. However, I believe that they will not be able to increase as aggressively as they would like as the first half of the year may be economically challenging. I think they will have their opportunity to raise rates in the second half of the year, and will finish the year somewhere between 0.50% and 0.75%. Whilst rising interest rates can sometimes cause a bit of short term pain, it is healthy that they are on the path to "normalisation". I'm going to claim this one. The rates in the USA are still at 0.25%, but the FMOC meets tomorrow and it is unanimously expected that they will raise rates to 0.50%. Despite all the political instability over the past year, the USA economy continues to grow at a modest but steady pace, and a rates increase is encouraging to me. The "normalisation" process can now begin in earnest. Prediction – 3 : Reality – 3. 5. For a bit of fun, I'll throw in a Brendon McCullum prediction. Here is a man who has been an inspirational captain for the New Zealand cricket team. He has led this team to heights and success that they haven't enjoyed for over a decade. He retires from test cricket this year, and his swan song is against the old foe Australia. It's poised to be a classic series. I think the Black Caps will win the series, and Brendan will make one last 100 (weather permitting) before the curtains fall on his illustrious test career. Go you good thing! Ahhh – our old friend B'Mac. Sadly, he didn't go out with a series victory. But he did go out with the fastest test century in history – a record that I imagine will remain in place for many years to come. 100 off 54 balls – a special innings indeed! Another draw - a point for the century, but a point to reality for series loss. Prediction – 4 : Reality – 4. 6. My currency prediction is the same as it has been for the past 5 or so years. I see continued downward pressure on the NZ$ against the USA$, GBP and AUS$. Whilst this isn't great for your online shopping or overseas holidays, it is a tailwind for the returns of any offshore investments you have domiciled in these currencies, so from this perspective you should be happy if I get this one right. Putting a number on it is nearly impossible, but I'll stab at somewhere near US60 cents, GBP40 pence, and AUS88 cents. I've got this totally wrong. The NZ$ continues to defy all logic and has strengthened over the past year against all 3 of these currencies. Brexit caught us all off guard, so the GBP call was always going to be really tough. But there are no excuses for AUS$ and US$. A shameful prediction which I will repeat next year in the hopes of it eventually coming true. Prediction – 4 : Reality – 5. 7. A prediction on the markets this year is really tough. As always, there is a spectrum of opinions from various commentators – some suggesting losses of up to 50% for the year, others suggesting returns in excess of 25%. There is no doubt that the investment environment is challenging. Most global share markets have now fallen around 20% from their highs in early 2015, and reflect negative returns over the past 12 consecutive months. For the month of January alone, many markets are down 10% so far. So to a large degree, the "correction" that everyone agreed was due has already taken place. I think markets this year will be volatile, and there will be a lot of "noise" in the media. But once all the dust settles and the headlines have sold the papers that employ them, I think the broader markets will finish the year roughly where they started (which is 10% ahead of where they are today). For me, this quote from economics columnist Morgan Housel sums up the year ahead – "My biggest takeaway from economics is that the past wasn't as good as you remember, the present isn't as bad as you think, and the future will be better than you anticipate." Make no mistake, investment professionals will be tested this year and will have to earn their salt, but I think the doomsayers will be proven wrong. I'm glad to report that the doomsayers were in fact proven wrong. Whilst markets were very volatile over the past 12 months, they have in fact ended the year higher than where they started. Asia, Australia and Europe were up modestly (about 5%), while the USA and NZ markets fared better and ended the year up about 10%. Given the turmoil of the year (Brexit, USA elections, Zika Virus, Brussels Terror attacks), this is in fact a good result. World markets have been extremely resilient to shocks this year, and a positive return in such uncertain times is a good outcome. Prediction – 5 : Reality – 5. So not a great year of predictions, but I'll settle for 50%. Here are the numbers for the past 30 days: |
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Given that we are nearing the end of the year, we are also nearing the end of our Giving Back campaign with Emma Robinson. It has been an absolute privilege working with Emma, and we are very pleased to confirm that we will be making a donation of $2,560 towards her expenses to ensure that she can continue to train and chase her dream of an Olympic medal. We wish her all the very best, and look forward to following her progress towards Tokyo 2020. We have an exciting new campaign for the first half of 2017, and will tell you all about it next month. In closing, I would like to take a moment to say a big thank you to you – our valued clients. At Isaacs Financial Planning we don't take your custom for granted– we know we have to earn it. So thank you for your support over 2016, and we look forward to working together through 2017 and beyond. Wishing you and your loved ones a fantastic Festive Season and a magical New Year. May Santa fill your stockings with all your dreams coming true. Until next time, take care. Dave and the team at Isaacs Financial Planning dave@mifinancialplanning.co.nz |
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This newsletter is intended for general distribution and does not constitute personal financial advice. Copy of my primary disclosure statement and secondary disclosure statement.